FA-301h · Module 1
Cost Avoidance vs. Revenue Generation
3 min read
Investment benefits come in two forms: cost avoidance (saving money you are currently spending) and revenue generation (making money you are not currently making). CFOs weight these differently. Cost avoidance is tangible and verifiable — you can point to the expense line item that decreases. Revenue generation is speculative and depends on execution — you are projecting new income that does not yet exist. A business case built primarily on cost avoidance gets funded faster than one built primarily on revenue generation, even if the revenue case has higher total return.
Do This
- Separate cost avoidance from revenue generation benefits — do not blend them into one number
- Quantify cost avoidance from current spend: "We spend $X today. This reduces it to $Y."
- Discount revenue generation projections by a realization factor (typically 60-80%)
- Lead with cost avoidance in the business case — it is credible. Add revenue generation as upside.
Avoid This
- Present all benefits as "savings" when some are revenue projections — CFOs see through this
- Claim cost avoidance for costs that do not currently exist ("we avoid hiring 3 people we were not going to hire")
- Present revenue generation at 100% realization — execution risk means projected revenue is worth less than projected savings
Business Case — Benefit Classification:
──────────────────────────────────────────────────────
Type Benefit Confidence Adj. Value
──────────────────────────────────────────────────────
Cost Avoidance:
Reduce manual QA $85K 90% $76.5K
Eliminate vendor $42K 95% $39.9K
Reduce support hrs $28K 80% $22.4K
──────────────────────────────────────────────────────
Subtotal: $155K $138.8K
Revenue Generation:
Faster time-to- $120K 60% $72.0K
market
Upsell enablement $95K 50% $47.5K
New market entry $200K 40% $80.0K
──────────────────────────────────────────────────────
Subtotal: $415K $199.5K
Total (nominal): $570K
Total (adjusted): $338.3K ← This is the
defensible number.